There is so much money to be made on Wall Street.
In law school my friends and I used to have a saying. A lawyer makes good money. The people over at the business school who will hire the lawyers make great money. (Readers might recognize this as an old Chris Rock riff, and hat tip to him.)
Analysts and associates at particularly large banks can make more than $180,000 in their first year on the job when including both salary and bonus. Particularly wealthy firms will pay well over $200,000 for the best and the brightest straight out of school. With the Dow Jones Industrial Average having increased by 10,000 points over the past four years, there is a firehose of money to be made in the world of business and banking.
Although that doesn’t mean it’s always a good idea.
What Does an Investment Banker Do?
The term “investment banker” can refer to a number of specific positions within an investment banking institution. (These are legally defined as banks which do not hold consumer deposits, and which buy and profit from securities.)
Investment banks perform a number of functions. At their most basic, they manage investments typically organized around funds. They buy and sell securities on behalf of both their investors and the institution itself. When you buy into a mutual fund or ETF, for example, there is a reasonable chance it is operated by an investment bank.
However, investment banks also play a significant role in helping institutions secure capital. They facilitate companies releasing stocks in an initial public offering, for example, finding initial investors and pledging to buy any unsold shares in a process known as “underwriting.” Companies and governments looking to issue bonds often do so through investment banks, as do corporations looking to conduct an acquisition or stock buyback.
Ultimately, the most succinct answer to this question is: Investment banks help to manage capital. They connect institutions looking for capital with investors who have it, and profit in the exchange.
How To Become an Investment Banker
There is no step-by-step guide to becoming an investment banker. Instead, most people in this field begin while in school.
Class or No Class
At the outset it’s important to note that social graces play some, but relatively little role in securing a job in banking.
While this may have been true at one time, the culture of “one of us” has steadily diminished in recent years. Contrary to some reporting, modern banks care little about whether you have the right color shoes, the right haircut or order the right wine while at dinner. They care about one thing: Money.
They want the brightest, most talented minds they can get. If you have the mental horsepower, an investment bank will snap you up in a minute. Poor social graces or wearing the wrong kind of tie might limit how high you can rise, to be sure. At a certain point success in this field becomes about securing new clients, and that is a game of social graces.
But to work as an associate in an investment bank, you just need to be able to make someone money.
Go to School
It is rare to enter investment banking from an alternative career path. Unlike many professions, you will not see people enter laterally from an unrelated field.
Instead, most investment bankers get their start in school. Banks recruit primarily from business programs, both MBA (master of business administration) and BBA (bachelor of business) degrees. In addition, banks tend to strongly consider students studying fields such as economics, accounting, mathematics and computer science. Occasionally banks will also consider applicants from law schools, although this is more rare than not.
Major banks, the ones that offer six-figure salaries out of the gate, tend to recruit only from top-10 institutions. This is not a hard and fast rule, but if you want to start on Wall Street you should aim for the most prestigious programs you can find.
Investment bankers are what business schools refer to as “quants,” meaning that their work is mathematical and numbers-oriented. Load up on relevant courses while in school both to attract a bank’s interest and to make sure that this is a field you want to pursue.
Get an Internship
The path to starting work at an investment bank is fairly rote. While in school, students will seek and get an internship at a firm. They’ll spend at least one (on occasion more) summer there, working and developing a relationship with the bank’s team.
Before graduation the bank will decide whether to extend an offer. Most people who work in this field start in either investment banking or a directly related position as their first job out of school.
Lateraling Into Investment Banking
If you have already begun your career and would like to consider moving into investment banking, your options depend almost entirely on your current field.
If you work in a related field, you may be able to apply for a job directly. For example if you manage financial assets in some advanced capacity or if you practice securities law for a major firm, it may be possible for you to move directly into banking. This isn’t necessarily easy however. Investment banking generally involves a technical, highly specific skill set rarely developed in other professions. The truth is, if you don’t already do this, the odds are low that you’ll have the skills to do this job.
Otherwise, the most likely option for success is to go back to school and seek an advanced degree. If you don’t already hold an MBA, this is typically the best option. This degree doesn’t require applicants to demonstrate field-specific knowledge outside of general professionalism and it can be a direct path into investment firms.
Be aware, however, that like many industries with a lock-step recruitment process, investment banking will trend toward hiring young men and women as their first year associates. This is particularly true due to the hours, which are especially punishing on people with spouses and families. If you are in your 20s, this will not be a problem. Expect to be an unusual candidate if you are in the middle of your career.
Life as an Investment Banker
Investment bankers work long hours under stressful conditions. Anticipate 80-100 hour weeks as a normal course of business, with 14-hour workdays and no weekends. Time off will be rare and when you do get it the firm will expect you to remain available by email (at the least).
Like most major law firms, big investment banks pay top dollar and expect that you will deliver availability and skills to match. If you’re looking for work/life balance, or even the chance to reliably sleep in on the weekends, this is probably not the right field for you.
On the other hand, if you are the work hard/play hard type with dreams of a seven-figure bank account by your mid-30s, investment banking can deliver. Just remember before signing on the dotted line: You can always make more money. You’ll never be 29 again.
It’s never too late – or too early – to plan and invest for the retirement you deserve. Get more information and a free trial subscription to TheStreet’s Retirement Daily to learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? Email Robert.Powell@TheStreet.com.